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Legal Marijuana: What's Really At Stake With Today's Vote

With three states voting on legalizing marijuana in some aspect, it pays to know what's really at stake.

It's been talked about for months, if not years, but today is officially the day when citizens in the states of Oregon and Alaska, as well as Washington, D.C., will vote on whether or not to legalize recreational, adult use marijuana, potentially joining just Washington and Colorado as the only other legal marijuana states. In addition, Floridians are going to the polls to decide whether or not they'll become the 24th state to legalize medical marijuana.

There's certainly a lot on the line given today's votes. Let's have a look at some of the possible implications for the states, the momentum behind the marijuana movement, and even for investors.

An important vote for three statesFor states, the reasoning behind the legalization vote, at least from an adult use standpoint, has little to nothing to do with public sentiment and everything to do with boosting tax revenue. Let's not forget that Oregon and Alaska have no sales tax, Washington no income tax, and Colorado a budget gap, so recreational marijuana serves the perfect purpose of bringing in additional revenue to the state without having to turn to other forms of tax increases, or worse yet, cost-cutting layoffs, which can trickle down through a state's economy and wreak havoc.

Oregon, for example, according to the states' Financial Estimate Committee, could see as much as $40 million in additional tax revenue each year from the approval of adult use marijuana. The low end of the presented estimate was $17 million. Of course, keep in mind that this is a two-way street, and the legalization of adult use marijuana would significantly reduce the number of legal cases brought against those persons found in possession of marijuana. Theses cost savings combined with additional revenue could result in a favorable budget swing.

In Alaska, according to a report released this past week by the Marijuana Policy Group, the retail sales value of legal marijuana is expected to increase (assuming approval) from $55.6 million in 2016 to nearly $107 million in 2020. Tax revenue is projected to rise from $7.1 million in 2016 to $23.8 million in 2020.

Florida's Health Department also gave a very wide-ranging estimate on the tax benefits it could see from legalizing medical marijuana. While assuming some 417,000 in-state residents would qualify, and basing its estimates off two widely different per-ounce price points for marijuana, as well as two very wide gaps in consumption, the Florida Health Department predicts the state could bring in anywhere from $19.9 million-$39.8 million on the low end in tax revenue, to $169 million-$338 million on the high end (though this assumes about nine times the annual consumption of the low-end example).

Long story short, this revenue can go a long way toward keeping current state and/or income taxes unchanged and, more importantly, keep state jobs safe.

What this means for the legal marijuana movementToday's vote is also important for those people who support the legalization of marijuana either for medical purposes, recreational use, or both.

What's particularly notable is the state of Oregon, since this is actually the second time an adult use amendment has been put in front of voters. Many people forget that while Washington and Colorado voters legalized adult user marijuana in 2012, Oregon voters rejected the idea. If the amendment passes in Oregon this time around, it should continue to fan the flames of optimism for marijuana supporters.

However, if it fails to pass for a second time, it could knock the wind out of the marijuana legalization movement and encourage the idea that even though a majority of respondents in most polls are in favor of its legalization, a wider representation of people in these states simply aren't. It could be a wake-up call to optimists and investors that marijuana simply won't be legalized in every state. It's also a solid reminder, at least for the time being, that the federal government has no intention of altering its stance on marijuana as a schedule 1 drug.

Investing implicationsFinally, there are important investing implications at stake as well, because we know full well having witnessed the meteoric rise and fall of a number of cannabis-based penny stocks that many traders are emotional creatures.

Putting your faith into penny stocks in general is rarely a good idea, and in this case, when it comes to marijuana companies, many with unsustainable business models and little to no revenue, it's an even worse idea.

If you're considering venturing into this arena, the two names to keep an eye on are GW Pharmaceuticals (NASDAQ:GWPH) and, to a lesser extent, Insys Therapeutics(NASDAQ:INSY).

Source: GW Pharmaceuticals.

GW Pharmaceuticals has discovered five dozen cannabinoids derived from the cannabis plant. By utilizing these cannabinoids in conjunction with the cannabinoid receptor system found in our bodies, GW hopes to effect positive biologic changes and help fight ailments ranging from cancer pain to type 2 diabetes. Though the company has seen very modest success outside the U.S., with the approval of Sativex as a treatment for epilepsy associated with multiple sclerosis, it's found no such luck in the U.S. as of yet. However, if Florida becomes yet another state to legalize medical marijuana, it could begin to tip the Food and Drug Administration's hand toward favoring cannabinoid-based products, which would be good news if Sativex proves successful in an ongoing phase 3 cancer pain trial.

Insys, on the other hand, has just a single cannabinoid-based compound in the works -- a quicker-acting version of dronabinol, a treatment to reduce chemotherapy-induced nausea and vomiting.

Both companies would likely see some modestly positive price reactions to an approval in Florida, though investors will want to detach the emotional aspect of the vote and let the clinical studies do the talking.

Keep your eyes peeled -- we'll take a closer look at the results tomorrow and decipher what voters' decisions will ultimately mean.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Author

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest. Follow @TMFUltraLong